M/S. BLUESHELL INVESTMENTS PVT. LTD, MUMBAI V. THE ADDL CIT RG (5)1, MUMBAI

ITA 2807/MUM/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1688 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 04-10-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 11-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: H P MAHAJANI
• Keywords: Business income; Deemed to accrue or arise in india; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO.2807/M/2007 ASSESSMENT YEAR: 2003-2004 M/S. BLUE SHELL INVESTMENTS P. LTD., KEJRIWAL HOUSE, 7, N. GAMADIA ROAD, MUMBAI 400 026. PAN:AAACB 1831B VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-(5)1, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) I.T.A. NO.2839/M/2007 ASSESSMENT YEAR: 2003-2004 ADDL. COMMISSIONER OF INCOME TAX, RANGE-(5)1, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S. BLUE SHELL INVESTMENTS P. LTD., KEJRIWAL HOUSE, 7, N. GAMADIA ROAD, MUMBAI 400 026. PAN: AAACB 1831B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI H.P. MAHAJANI, AR REVENUE BY : SHRI PANKAJ KUMAR, DR DATE OF HEARING: 6.2.2013 DATE O F ORDER: 8.3.2013 O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APP EALS. THESE APPEALS ARE FILED AGAINST THE SAME ORDER OF C IT (A)-V, MUMBAI DATED 23.1.2007 FOR THE ASSESSMENT YEAR 2003-2004. FOR T HE SAKE OF CONVENIENCE, WE ARE ADJUDICATING THESE TWO APPEALS IN THIS COMMON ORDER . APPEAL-WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. FIRSTLY, WE SHALL TAKE UP THE ASSESSEES APPEAL AND THE GROUNDS RAISED IN THIS APPEAL READ AS UNDE R: 1. THE LD CIT (A) ERRED IN CONFIRMING AN ADDITION O F RS. 18,00,141/- ON ACCOUNT OF NOTIONAL INCOME FROM OCCUPANCY RIGHTS OF 18,635 SQ.FT WHICH HAD NOT BEEN LET OUT. WITHOUT PREJUDICE TO T HE GENERALITY OF THE ABOVE GROUND THE ADDITION MADE IS HIGHLY EXCESSIVE. 2. THE LD CIT (A) ERRED IN HOLDING THAT THE ASSESSI NG OFFICER WAS JUSTIFIED IN REJECTING THE LOSS OF RS. 25,85,000/- ON ACCOUNT OF REDUCTION IN VALUE OF CLOSING STOCK OF SHARES HELD AS STOCK -IN-TRADE. 2 2. 1. THE LD CIT (A) FAILED TO APPRECIATE THAT THE VALUATION OF STOCK OF SHARES AS ON 31.3.2003 WAS FULLY SUPPORTED BY ACTUAL TRANSACTION / NECESSARY EVIDENCE AND WAS FULLY JUSTIFIED. 3. THE LD CIT (A) ERRED IN HOLDING THAT RENT OF RS. 63,00,000/- RECEIVED BY THE APPELLANT BY LETTING OUT COMMERCIAL PROPERTIES WAS CHARGEABLE TO TAX AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE APPELLANT. 3.1 THE LD CIT (A) CONSEQUENTLY ERRED IN HOLDING TH AT THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 24(A) WITH REFERENCE TO RENT OF RS. 63,00,000/- RECEIVED BY THE APPELLANT BY LETTING OUT COMMERCIAL PROPERTIES. 4. THE LD CIT (A) OUGHT TO HAVE ALSO DIRECTED THE A SSESSING OFFICER TO GRANT DEDUCTION IN RESPECT OF PROPERTY TAX PAID AS THE APPELLANT. 5. THE LD CIT (A) ERRED IN UPHOLDING THE ARBITRARY AND ADHOC ENHANCEMENT IN ANNUAL LETTING VALUE BY 15% IN RESPECT OF RENT RECEIVED FROM RESIDENTIAL PROPERTIES LET OUT BY THE APPELLAN T. 2. DURING THE PROCEEDINGS BEFORE US AND AT THE OUTS ET, LD COUNSEL MENTIONED THAT THE ASSESSEE ACQUIRED PROPERTY RIGHTS ON M/S. YERROWADA INVESTMENT LTD (IN SHORT YIL) BY WAY OF INVESTMENT OF THE SHARES IN T HE SAID COMPANY. THE IMMOVABLE PROPERTIES AND STOCK-IN-TRADE ARE SPECIFIED IN THE AGREEMENT. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTIONS 2(22)(A) OF THE ACT AND THRUST ON THE ASSESSEE THE RENTAL INCOME IN THE FORM OF DEEMED DIVIDEND IN RESPECT OF COMMERCIAL PROPERTY (17500 SQ.FT); B-2 RESIDENTIAL BUILDING (6 ,39,009 SQ.FT); C-2 RESIDENTIAL BUILDING (57,960 SQ.FT) AND STOCK-IN-TRADE OF (18,6 35 SQ.FT) TOTAL AMOUNTING TO 18,00,141 SQ.FT WHILE TAXING THE SAME UNDER THE HEA D INCOME FROM OTHER SOURCES . THE REVENUE IS OF THE OPINION THAT THE ASSESSEE I S NOT THE OWNER OF THE SAID PROPERTIES. CONSEQUENTLY, THE RECEIPTS COULD ONLY BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. GROUND 1 IS RELEVANT I N THIS REGARD AND THE ISSUE OF DEEMING THE REAL INCOME AS DEEMED INCOME U/S 2(22)( A) CONSTITUTES THE FIRST LIMB. IN THE BACKGROUND OF THE ABOVE FACTS, LD COUNSEL MEN TIONED THAT THE ISSUE OF OWNERSHIP OF THE PROPERTIES AND THE ISSUE OF APPLIC ABILITY OF PROVISIONS U/S 2(22) (A) OF THE ACT ARE RELEVANT AND THEY WILL DECIDE THE AP PROPRIATE HEAD OF INCOME FOR TAXING THE RECEIPTS EARNED OUT OF THE SAID PROPERTI ES. IN THIS REGARD, LD COUNSEL BROUGHT TO OUR NOTICE THE DECISION OF THE TRIBUNAL IN THE CASE OF DEEPAK NITRITE LTD VS. DCIT VIDE ITA NO.2614/AHD/2008, DATED 29 TH JANUARY, 2010 AND PARA 4.4 IS RELEVANT IN THIS REGARD WHICH READS AS UNDER: 4.4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE PROVISIONS OF SECTION 2(22)(A) HAS BEEN EXTRACTED BY CIT (A) I N PARAGRAPH 6.6 OF HIS 3 ORDER. BY READING THE AFORESAID DEFINITION IT IS C LEAR THAT DIVIDEND WILL INCLUDE UNDER CLAUSE (A) ONLY WHEN IT AMOUNTS TO DISTRIBUTI ON BY A COMPANY OUT OF ACCUMULATED PROFITS COUPLED WITH RELEASE OF ANY PAR T OF THE ASSETS OF THE COMPANY. THEREFORE, TO ATTRACT SECTION 2(22)(A), T HE DIVIDEND CAN BE TAXED ONLY WHEN THERE IS DISTRIBUTION OUT OF ACCUMULATED PROFITS BY WAY OF RELEASE OF ANY PART OF THE ASSETS. IN THE PRESENT CASE IT IS SEEN THAT WHEN THE ASSESSEE ACQUIRED THE SHARES, IT ALSO ACQUIRED THE OCCUPANCY RIGHT IN THE PREMISES. SUCH RIGHTS WERE ACQUIRED DURING FY R ELEVANT TO ASSESSMENT YEARS 1997-98. THERE IS NO AMENDMENT TO THE ARTICL ES AFTER THE SHARES ARE ACQUIRED BY THE ASSESSEE. THUS, THERE IS NO RELEASE AT ANY ASSETS BY YIPL TO THE ASSESSEE WHO IS A SHAREHOLDER THEREIN. THERE IS ALSO NO FINDINGS THAT THE DISTRIBUTION IS OUT OF ACCUMULATE D PROFITS NOT PROPERTY ITSELF. SINCE, THERE IS NO RELEASE BY THE COMPANY TO THE AS SESSES OF ANY ASSETS AND THAT TOO OUT OF ACCUMULATED PROFITS DURING THE YEAR IN APPEAL, THE ADDITION U/S 2(22)(A) IS NOT CALLED FOR . WE, THEREFORE, DELETE ADDITION MADE U/S 2(22)(A) OF THE ACT. 3. FROM THE ABOVE, IT IS EVIDENT THAT THE PROVISION S OF SECTION 2(22)(A) HAS NO APPLICATION TO THE FACTS OF THIS CASE WHICH ARE AKI N TO THE FACTS OF THE DEEPAK NITRATE LTD (SUPRA) WHICH ALSO OWNS THE SHARES IN M/S. YERR OWADA INVESTMENT LTD (SUPRA). THUS, UNDER SIMILAR CIRCUMSTANCES, THE ISSUE OF OWN ERSHIP UNDER THE PROVISIONS OF SECTION 2(22)(A) OF THE ACT, IS SETTLED AT THE LEVE L OF THE TRIBUNAL. ACCORDINGLY, RELEVANT GROUNDS OF THE APPEAL ARE ALLOWED . 4. THE OTHER LIMB RAISED BEFORE US RELATES TO THE ADDITION ON ACCOUNT OF NOTIONAL INCOME FROM OCCUPANCY RIGHTS OF 18,635 SQ.FT . IN THIS REGARD, LD COUNSEL MENTIONED THAT THE NOTIONAL INCOME SHOULD BE NIL IN THIS CASE CONSIDERING THE PROVISIONS OF SECTION 23(1)(C) OF THE ACT. LD COUN SEL ARGUED STATING THAT THIS BEING THE STOCK-IN-TRADE, THE INCOME IF ANY SHOULD BE TAX ED UNDER THE HEAD BUSINESS INCOME AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES . IN THIS REGARD, WE HAVE PERUSED THE ORDERS AND FIND THAT THEY DO NOT F ALL UNDER THE SCOPE OF SPEAKING ORDERS. CONSIDERING THE FACT THAT THE ORDERS OF TH E REVENUE ARE NOT SPEAKING ORDERS ON THIS ISSUE, WE ARE OF THE OPINION THAT THIS MATT ER MUST BE SET ASIDE TO THE FILES OF THE AO FOR RE-ADJUDICATION AFTER CONSIDERING THE VA RIOUS DECISIONS CITED BY THE LD COUNSEL BEFORE US. ASSESSEE IS DIRECTED TO FURNISH THE REQUISITE INFORMATION BEFORE THE AO WHICH FACILITATES GENERATION OF SPEAKING ORD ER FROM THE AO. ACCORDINGLY, THIS PART OF THE GROUND IS SET ASIDE. 4 5. GROUND NO.2 RELATES TO REJECTING THE LOSS OF RS. 25,85,000/-ON ERRONEOUS PRESUMPTIONS. ON PERUSAL OF THE RECORDS, WE FIND T HAT THE ASSESSEE FOLLOWS THE METHOD OF ACCOUNTING IN CONNECTION WITH STOCK-IN-TR ADE IE COST OR MARKET VALUE WHICHEVER IS LESS. ACCORDINGLY, THE OPENING VALUE OF THE STOCK WAS TAKEN ON THE SAME BASIS IN THE BOOKS OF ACCOUNT DETERMINING THE AMOUNT OF RS. 2,84,35,000/- AND THE SAID STOCK-IN-TRADE WAS SOLD ON 29.4.2003 F OR A SUM OF RS. 2,58,50,000/- AND THE DIFFERENCE IE RS. 25,85,000/- CONSTITUTES A LOSS WHICH IS RIGHTLY ALLOWABLE TO THE ASSESSEE. FACTUALLY, THERE ARE NO SUCH REMAININ G PROPERTIES AFTER THE SAID SALE. THEREFORE, THE CIT (A) WRONGLY MENTIONED IN PARA 9. 1 THIS RATE IS NOT REPRESENTATIVE OF THE MARKET RATE AND THEREFORE, CANNOT BE ADOPTED FOR VALUING THE REMAINING PROPERTIES IN THE QUESTION. THEREFORE, IT IS CLEAR THE VALUE OF THE OPENING STOCK IS RS 2,84,35,000/- AND SALE VALUE IS RS. 2,58,50,000/ - AND ON SALE, THE ASSESSEE EARNED THE LOSS OF 25.85 LAKHS. THE SAME IS EVIDENT FROM THE ENTRIES IN THE BALANCE SHEET, SCHEDULE-6 IS RELEVANT TOO. CONSIDERING THE ABOVE, THE ASSESSEE IS ENTITLED FOR CLAIM OF LOSS. ACCORDINGLY, GROUND NO.2 IS ALLOWED . 6. GROUND NO.3 TO 5 ARE CONSEQUENTIAL TO GROUND NO. 1. ACCORDINGLY, IN VIEW OF OUR DECISION ON GROUND NO.1, THESE GROUNDS 3 TO 5 A RE ALSO SET ASIDE TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. I.T.A. NO.2839/M/2007 (AY: 2003-2004) (BY REVENUE) 8. THIS APPEAL FILED BY THE REVENUE ON 12.4.2007 IS AGAINST THE ORDER OF CIT (A)- V, MUMBAI DATED 23.1.2007 FOR THE ASSESSMENT YEAR 2 003-2004. 9. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND AS PER LAW, THE LD CIT (A) HAS ERRED IN DIRECTING TO TREAT THE RENT AL INCOME FROM TWO PROPERTIES VIZ B2 & CS BUILDINGS AS INCOME HOUSE PR OPERTY IN THE HANDS OF THE ASSESSEE, BEING REAL OWNER AS AGAINST ASSESSED AS I NCOME FROM OTHER SOURCES. 5 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND AS PER LAW, THE LD CIT (A) HAS ERRED IN DELETING THE 15% HIKE MADE IN RENTAL INCOME AS RESPECT OF COMMERCIAL PROPERTY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND AS PER LAW, THE LD CIT (A) HAS ERRED IN DIRECTING TO ALLOW CREDIT F OR PROPERTY TAX AND OTHER DEDUCTION AS ADMISSIBLE UNDER LAW RELATING TO PROPE RTIES NAMELY B2 & C2 BUILDING. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND AS PER LAW, THE LD CIT (A) HAS ERRED IN DIRECTING ON ACCOUNT OF ALV OF ONE RESIDENTIAL HOUSE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND AS PER LAW, THE LD CIT (A) HAS ERRED IN DIRECTING TO ASSESS THE NOT IONAL INCOME OF VACANT PROPERTIES UNDER THE HEAD INCOME FROM HOUSE PROPER TY AND ALLOW THE BENEFIT AS PER LAW, AS AGAINST AOS ACTION OF ASSES SING THE SAID INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 10. ALL THESE GROUNDS OF THIS APPEAL SHARE THE SAME ISSUES RAISED IN ASSESSEES APPEAL AND ADJUDICATED BY US AS PER THE DISCUSSION ABOVE. THE ARGUMENTS OF THE PARTIES AND OUR DECISION APPLY EQUALLY TO THE ISSUE S RAISED IN THIS APPEAL TOO. THEREFORE, IN VIEW OF OUR ADJUDICATION OF THE RELAT ED GROUNDS IN ASSESSEES APPEAL, ALL THE GROUNDS RAISED IN THIS APPEAL ALSO SET ASIDE TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH AFTER PROVIDING A REASONABLE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROUNDS ARE SET ASIDE. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF MARCH, 2013. SD/- SD/- (VIVEK VARMA) (D. KARUNAKAR A RAO) JUDICIAL MEMBER AC COUNTANT MEMBER DATE : 8.3.2013 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR I, BENCH, ITAT, MUMBAI. 6. GUARD FILE. 6 // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI